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Rating:Declaration of Independence Not Rated 3.0 Email Routing List Email & Route  Print Print
Thursday, January 04, 2001

Declaration of Independence

Reported by Tamiko Toland

The SEC has announced the adoption of its much-debated independent director rules. The rules are intended to increase shareholder awareness and fund accountability.

"Mutual fund independent directors are an investor's front-line defense against conflicts of interest and other potential abuses," said Paul Roye, Director of the SEC's investment management division. "Although no regulation can ensure director independence and effectiveness, the initiatives announced by the Commission today represent a significant step in providing fund directors with the tools, the access, and the power to faithfully fulfill their legal duty and moral mandate as the shareholders' representative."

The ICI views the new rules as another measure that will increase consumer confidence in mutual funds. Increasing funds' transparency to investors, without hogtying firms, serves only to advance the industry.

"Mutual funds are the only companies in the country that are required by law to have independent directors," said ICI president Matthew Fink. "This system of overseeing the interests of mutual fund shareholders has helped the industry avoid systemic problems and contributed significantly to public confidence in mutual funds."

The SEC will be posting the full text of its new rulings on its Web site.

For many funds, the rules increase the required percentage of independent directors on the board, demand that legal counselors for those directors be independent themselves, and that independent directors must be nominated and selected by other independent directors.

Furthermore, shareholders will have better access to such information as who the directors are, number of shares held by them, directors' potential conflicts of interests, and the board's role in fund governance.

In additional changes, directors will no longer be disqualified by index fund holdings and will be more fully covered by liability insurance. Funds will also be required to keep records on their own independent director watchdog efforts and incentivize the use of independent audit committees.


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